Special Notice on FSMA from Kiva Staff on August 21, 2009:

Kiva’s Lending Partner, FSMA, is ceasing operations and is unable to repay debt to Kiva. Therefore, all of FSMA’s active loans have been defaulted and the partnership is now closed. Please see the FAQs below for more information.

Q: What is FSMA and how is it related to Kiva?

A: Loans on the Kiva website are administered by independent Lending Partners, which are organizations that lend to the poor for poverty alleviation. The role of a Lending Partner is to screen each entrepreneur, upload his/her loan request to the Kiva website, disburse the loan, and collect repayments. FSMA is a microfinance institution in the Dominican Republic that has been a Kiva Lending Partner since July 2007.

Q: What is the current status of FSMA’s operations?

In early 2009, FSMA’s executive team uncovered a far-reaching internal fraud that cost the foundation heavy losses in terms of their portfolio, earnings and borrower confidence. The perpetrators of the fraud have been fired and the current management has spent much of the past six months trying recover from the heavy hit they sustained as an institution.

In late July 2009, Kiva received a letter from FSMA stating their intention to wind-down their portfolio and cease operations. In the letter they stated that they are unable to continue to operate due to the losses they have sustained. As such, in the next few months they will take the necessary steps to execute a cessation of operations.

Q. What does it mean for a loan to default?

A: A loan is typically classified as ‘defaulted’ if it has reached six months beyond its scheduled repayment date and has not been fully repaid. For example, if a loan is scheduled to be repaid in 12 months, and after 18 months the loan has not been fully repaid, it would generally be defaulted.

Q. Why is my loan being defaulted?

A. While FSMA will continue to try and make collections on their outstanding loans, complete or even partial recovery of Kiva funds is highly unlikely at this point.

Q: What has Kiva done to investigate the situation?

A: Kiva has been in regular communication with the executive team at FSMA regarding their status of operations. FSMA is very committed to doing all they can to help recover Kiva loan funds, and they have been very cooperative with all requests Kiva has put forth to them during this difficult time. In addition, a Kiva staff member visited FSMA in April 2009 to verify the information that we received from FSMA regarding their challenges.

Q: Did the entrepreneur that I loaned to receive any of his/her loan?

A. Most likely. The internal fraud suffered by FSMA affected not only their ability to repay their creditors (including Kiva lenders), but also their ability to track with certainty the amounts disbursed and repaid by their borrowers. During an on-site visit, Kiva was able to verify that they vast majority of Kiva borrowers did in fact receive loans. We are not, however, able to verify the exact amounts of these loans nor their loan use.

Q: Is Kiva still working to collect loan repayments from FSMA?

A: Yes. Kiva has engaged our local counsel in the Dominican Republic to take the appropriate steps to help us make a claim for our proportionate share of the assets that remain with the organization as the liquidation proceeds.

Q: What happens if Kiva recovers additional funds from FSMA?

A: If Kiva is able to collect further funds, they will be repaid proportionally to affected FSMA lenders on a pro-rata basis. All lenders will be notified of any repayments by email.

Q: What does this situation mean for FSMA’s entrepreneurs?

A: Based on our investigation, which included in-person borrower visits, we remain confident that the vast majority of entrepreneurs and business activities posted by FSMA to the Kiva website were actual individuals and businesses. We can say with confidence that borrowers, in most cases, have been able to use their loan funds to invest in their businesses and improve their lives.

Q: What Can I Do to Minimize Risk for Future Kiva Loans?

A: Kiva is committed to partnering with high-quality microfinance institutions with a social mission of lending to the poor. While partnering with younger microfinance organizations can imply greater risk of non-repayment, this is a portion of the microfinance industry that can create a great deal of social good. We encourage you to, at all times, refer to our Lending Partner Pages , which indicate our assessment of the level of risk associated with each microfinance institution, as well as our Risk and Due Diligence Center

. Q: What is Kiva doing to prevent this situation from occurring again in the future?

A: A vast majority of our Lending Partners are healthy organizations that are very capable of administering your loans with the highest integrity. An incredible amount of work goes into ensuring that we are lending to healthy organizations capable of disbursing Kiva loans, that each entrepreneur gets the loan capital that you provide, and that you can trust the information on Kiva’s website. Please read below for a summary our risk management programs that aim to prevent situations like this occurring in the future.

Before Partnership: Screening

Before partnership with Kiva, each microfinance institution must be cleared of the U.S. Department of Justice Terrorist Exclusion List and the U.S.Treasury Department's list of "Specially Designated Nationals and Blocked Persons,” and they must provide Kiva with legal incorporation registration documents recognized by the local government. In addition, Kiva staff evaluates the organization’s finances, management, past performance, and other resources available. Kiva staff also completes numerous reference checks on each organization, and evaluates its social mission.

During Partnership: Rating and Monitoring

When an organization has been accepted as a Kiva Lending Partner, it is assigned a Risk Rating by Kiva, which determines the organization’s fundraising ability on Kiva. The Kiva Risk Rating reflects the relative repayment risk associated with each partner according to the characteristics described here. A 1 star rating indicates a relatively higher risk of repayment problems based on an MFI’s characteristics whereas a 5 star rating indicates a relatively lower risk of MFI-related repayment problems.

The Risk Rating is based on information from the Lending Partner, such as the organizational age, sustainability, and loan portfolio size, and from third parties, such as recent financial audits, credit ratings and independent evaluations. In addition, the Risk Rating is influenced by data gathered by Kiva that supports a Lending Partner's repayment reliability. This information includes Kiva data verification audits, Kiva Fellows journaling coverage, Kiva repayment performance over time, and bank statement reviews. Kiva Lending Partners are required to receive a Kiva staff person, representative, and / or third party auditors each year to evaluate the partnership, validity of loans, and accuracy of data. In some cases Kiva Lending Partners have received numerous visitors during a year.

Kiva Risk Management Kiva has staff whose responsibilities include regular re-evaluation of Kiva’s Due Diligence procedures, oversight of Kiva’s Lending Partner portfolio in terms of level of risk of each Lending Partner, and tactically managing any high risk situation with a Lending Partner which may or may not be triggered by delinquency, political instability, organizational instability, or fraud.

For more information check out our Risk and Due Diligence Center

Special notice on FSMA from Kiva Staff on May 21, 2009:

The internal fraud perpetrated by former members of FMSA’s senior management team has had a deep and lasting effect on their operations. Over the past few months, the organization has sustained heavy losses, has scaled back new disbursements, and has also been confronted with a degradation of borrower confidence in the markets that they operate in. As a result of these circumstances, their ability to collect on existing loans has been severely affected.

Because of this, FSMA does not have the ability to repay Kiva lenders at this time. Their delinquency rate has currently risen above 50%, and it will likely continue to increase over the next few months. FSMA’s management team is well aware of their obligation to Kiva lenders, and they are working to keep Kiva informed about developments that affect their capacity to repay their outstanding debt.

As new developments unfold, Kiva will continue to post updates to this page.

Special notice on FSMA from Kiva Staff on February 13, 2009:

In late December, FSMA's management team notified Kiva of an internal fraud that occurred at a high level in the organization. In an effort to protect the interests of new and existing Kiva lenders to FSMA borrowers, Kiva promptly changed FSMA's fundraising status to "paused" upon learning of this news. Over the course of discussions with FSMA over the following weeks, it has become apparent that this fraud has had a material affect on FSMA's portfolio and operations, and the future of the organization remains uncertain. Kiva continues to work closely with FSMA to monitor the situation, and as we learn more we will post updates about the situation to this page.

Additionally, FSMA’s “paused” status allows both Kiva and FSMA the opportunity to clear up our accounts and ensure that the information on the Kiva website matches the reality that is happening on the ground. This “clean up” includes reconciling active loans and also ensuring that we are properly accounting for portfolio delinquencies and defaults.

Partner Description provided by FSMA:

Fundación San Miguel Arcángel, Inc. (FSMA) is a “Grameen Partner” for the methodology under which it is run – the same methodology pioneered by 2006 Nobel Peace Price winner, Prof. M. Yunus. As a not for profit MFI, it assists in giving the poorest of the poor women entrepreneurs in the Dominican Republic access to credit irrespective of race, color, creed or country of origin.

Catering to 100% women, Fundación San Miguel Arcángel was initially thought of and established in the “founders’ mind”, Marcelino San Miguel, back in the year 2000. He was then presiding over what became the first Dominican consumer credit information bureau (such as any of those found in worldwide mainstream consumer credit information sources, such as Experian, Trans Union or Equifax). In 2004, when Marcelino’s family sold their interests in the credit information bureau, it became possible for him to dedicate his time and resources to establish Fundación San Miguel Arcángel.

The idea behind FSMA is to address the issue of exclusion from the traditional banking sector among the poorest of the poor. It seeks to answer the question, “What about those that can't even qualify to be listed in consumer credit information data files?” With the goal of serving more than 2 million people (over 25% of the population of the Dominican Republic) who suffer from severe poverty (incomes less than 2 USD per person per day, adjusted for purchasing parity equivalency), FSMA’s vision is to alleviate poverty by seeking out and empowering microentrepreneurs to become more autonomous. The organization made its first loan in April 2005.

To date, FSMA is probably the only organization of its kind to reach operational self-sufficiency in only 26 months of existence. As of June 2007, it has assisted over 6,000 women. The initial goals are to finance approximately 10,000 women entrepreneurs (of an estimated 600,000 possible or already entrepreneurially active women). Every time one woman’s financial needs are satisfied, an average of five human beings’ needs are directly met in her poor family!

The founders of FSMA can’t think of a more practical, direct way of assisting the poor than by lending to them to meet the incipient needs of their respective businesses. Micro and small businesses have been and actually are what make world countries’ economies grow and thrive in a sustainable fashion. So be it with the poor, hard working women of the lesser favored members of our societies. Yes, there are many, possibly more than those which can be taken care of, but to those which we do reach, it will make a ‘WORLD’ of difference.

“San Miguel Arcángel” literally means “St. Michael,the Archangel,” who is depicted as the “Captain of the Celestial Legions." It is also the name of the Patron Saint of the Dominican armed forces. In the case of FSMA, we believe in San Miguel Arcángel's “quest for combating poverty” as the enemy of peace loving citizens. Thus, we are working hard each day to empower the poorest women in the Dominican Republic.

Fundación San Miguel Arcángel, Inc. can be contacted directly by emailing info@sanmiguel.org.do

Repayment Performance on Kiva

    This Lending Partner All Kiva Partners
  Start Date On Kiva Jun 20, 2007 Oct 12, 2005
Total Loans $593,750 $1,961,263,340
Amount of raised Inactive loans $0 $368,750
Number of raised Inactive loans 0 225
Amount of Paying Back Loans $0 $155,292,280
Number of Paying Back Loans 0 180,364
Amount of Ended Loans $593,750 $1,775,561,795
Number of Ended Loans 1,148 2,382,297
Delinquency Rate 0.00% 11.50%
Amount in Arrears $0 $10,725,818
Outstanding Portfolio ($0) $93,282,250
Number of Loans Delinquent 0 45,477
Default Rate 27.80% 1.82%
Amount of Ended Loans Defaulted $165,038 $32,353,228
Number of Ended Loans Defaulted 485 84,927
Currency Exchange Loss Rate 0.00% 0.49%
Amount of Currency Exchange Loss $0 $12,023,738
Refund Rate 5.20% 0.54%
Amount of Refunded Loans $30,875 $10,526,300
Number of Refunded Loans 39 9,596

Loan Characteristics On Kiva

    This Lending Partner All Kiva Partners
  Loans to Women Borrowers 100.00% 78.24%
Average Loan Size $310 $392
Average Individual Loan Size $382 $589
Average Group Loan Size $1,199 $1,892
Average number of borrowers per group 5 8.3
Average GDP per capita (PPP) in local country $9,700 $5,599
Average Loan Size / GDP per capita (PPP) 3.19% 7.00%
Average Time to Fund a Loan 1.25 days 8.93 days
Average Dollars Raised Per Day Per Loan $247.78 $43.86
  Average Loan Term 6.06 months 11.47 months

Journaling Performance on Kiva

    This Lending Partner All Kiva Partners
  Total Journals 34 1,181,695
  Journaling Rate 2.87% 42.25%
  Average Number of Comments Per Journal 0.41 0.02
  Average Number of Recommendations Per Journal 16.09 0.57

Borrowing Cost Comparison (based on 2009 data)

    This Lending Partner Median for MFI's in Country All Kiva Partners
  Average Cost to Borrower N/A 41.00% PY 27.02% PY
  Profitability (return on assets) N/A 1.1% -3.10%
  Average Loan Size (% of per capita income) N/A 8.00% 0.00%

Country Fast Facts

Lending Partner Staff